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Limit Your Liability: How to Lessen Risk as a Manufacturer, Distributor, Contractor

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Risk is like the flu—no one wants it. Part of any contract negotiation involves attempting to reduce risk and liability. This particularly applies to the flooring industry, where the product has been passed between multiple entities that want to shed their liability when they hand the product to a company further down the supply chain. From the manufacturer to the distributor to the contractor or retailer and then the consumer, some or all of these parties may attempt to limit their liability through published policies or through written statements.

Manufacturer Liability

Of the cast of characters mentioned above, a manufacturer arguably has the easiest time limiting its liability because it only manufactures and sells products as opposed to providing services. A manufacturer’s duties and liabilities will generally be covered by the applicable state’s version of the Uniform Commercial Code (UCC). Under the UCC, a manufacturer or seller of a product may limit its liability through published limited warranty policies, even if the end user did not sign anything and never read the terms and conditions in question. In contrast, limiting liabilities and warranties in connection with services requires a written agreement specifically stating those limitations, and in some cases certain statutory warranties for services cannot be waived. Product manufacturers usually disclaim any implied UCC warranties through terms and conditions that appear on their websites, in packing slips or in other literature included with the product.

A manufacturer’s warranty (whether express or implied) extends to any person who may reasonably be expected to use, consume or be affected by the goods and who is injured by a breach of the warranty. For example, a court has held that even though the GC was the purchaser, a lumber distributor’s warranty extended to an engineer and an architect in connection with a project.

Product manufacturers, particularly those in the flooring industry, almost uniformly disclaim liability for labor involved with replacing a defective product. If a product issue arises, they will supply new product but will not pay for any labor to remove the old product and install the new product. This is one of the more common liability scenarios in the flooring industry, and it illustrates why the other parties to the transaction should protect themselves.

Distributor Liability

A distributor who purchases product from a manufacturer and resells it to the public (such as a contractor, flooring store, etc.) will also generally be covered by the UCC. As with the manufacturer, the distributor will also owe implied warranties under the UCC unless they are limited or disclaimed in writing. If the distributor is only selling products and is not providing any installation services, it may also limit its warranties and liabilities through written policies stated on its website, in any written agreements, and in any packing slips or materials enclosed with the product. A smart distributor will also limit its warranties to the material itself, and will disclaim any responsibility for labor to remove the defective material and replace it with new material.

Despite this, a distributor’s verbal representations can also become part of the bargain and work against them. For example, I once handled a matter where a lumberyard sold siding materials to a GC for a home in Minnesota. It turned out the siding product was not designed to withstand Minnesota’s weather, but the distributor’s representative had affirmatively represented to the GC and the homeowner that the product was fit for the intended purpose, i.e., installation on a Minnesota home. In that case, despite having disclaimed any implied warranties of merchantability or fitness for a particular purpose through language contained on its website and on packing slips, the lumberyard was still potentially liable for the labor costs because the other parties had relied upon the distributor’s verbal representations about the product’s fitness. The lumberyard eventually agreed to pay for the labor costs because of the uncertainty related to the “verbal warranties.”

Where Does That Leave Everyone Else?

If both the manufacturer and distributor disclaim responsibility for labor costs to replace a defective product, then who is responsible to pay for the labor? The answer depends on how well the other two parties to the transaction—the installer and the customer—protect themselves at the beginning of the transaction.

A prudent installer will use a well-written contract that includes waivers of liability for a number of potential issues. That waiver of liability clause (or possibly a separate agreement) should clearly state that the installer is not responsible for any labor costs involved with removing or replacing defective material. The installer’s waiver language should also state that the installer disclaims any responsibility for defective flooring materials and the customer (whether it is a GC or the property owner) must pursue any claims for product defects directly against the distributor or manufacturer. If indeed the problem with the project is defective materials and there are no workmanship or installation issues, a properly worded disclaimer will be enforceable to protect the installer against paying additional costs and also against attempts to withhold payment regarding the issue.

As stated above, since installers provide services and not products, they must require customers to sign a document containing a waiver and disclaimer provisions. This can be problematic when working for GCs, because they often refuse to sign anything but their own agreements. In turn, a GC’s own subcontractor agreement almost always shifts as much liability onto the subcontractor as possible. Therein lies a conundrum when dealing with these types of projects and the tug-of-war to shift responsibilities and liabilities for potential problems. While installers may simply need to deal with GCs on a case-by-case basis, when working for property owners, they would be well-advised to obtain a signed agreement containing waiver of liability and disclaimer language.

Other legal issues related to disclaiming liabilities, consequential damages and indemnification provisions are beyond the scope of this brief article. Simply put, all parties in a flooring project should carefully review their own stated warranty policies, procedures and agreements to make sure they are adequately protected. If the manufacturer, distributor, GC and installer all clearly and effectively disclaim any responsibility for labor necessary to remove and replace a defective flooring product, they should never be the one left “holding the bag” to pay for those labor costs.

This article originally appeared in Hardwood Floors magazine